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Simons Trading Research

Author: simonsg   |   Latest post: Wed, 18 Sep 2019, 3:15 PM

 

Jadason Enterprises Limited - the Humble Worker Calls the Shots

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  • Jadason Enterprises' FY18 net loss was 77% wider than our expectations as sales fell 13% y-o-y. 
  • Balance sheet remained net cash and borrowings were reduced to S$2.6m as at end-Dec 18, from S$3.2m at end-Dec 17. 
  • Expects better prospects with the roll-out of 5G mobile services in China but difficulty in hiring production workers is limiting its ability to return to the black. 

FY18 Net Loss Wider Than Expectations

  • JADASON ENTERPRISES LTD (SGX:J03)'s FY18 net loss of S$1.3m was 77% wider than expected. Results were impacted by a 13% y-o-y decline in sales, the absence of foreign exchange gain and lower scrap income.
  • Net cash as at end-Dec 18 was S$8.1m. No dividend was declared.
  • Both business segments reported lower sales as customers turned cautious amidst the rising trade friction in FY18.

Challenging FY19 Ahead

  • Jadason Enterprises expects FY19 to remain challenging as its customers remain cautious given the trade tensions between China and the US. However, on a positive note, prospects for the PCB drilling business are positive as China pushes ahead with its roll-out of 5G mobile services.
  • The issue, however, is the difficulty in hiring production workers as the current workforce in China favours work that offers more freedom, such as delivery jobs (food delivery, e-commerce deliveries) over repetitive and tedious factory work.

Maintain ADD With a Lower Target Price

  • We believe that trading conditions will remain difficult for Jadason and its worker shortfall issue will not be easily resolved. Meanwhile, a possible strategy for Jadason Enterprises could be to consolidate its manufacturing locations in China, Dongguan.
  • We have widened our loss forecasts for FY19-20F as we lower our scrap income assumptions. Maintain ADD with a lower Target Price of 6.6 Scts, based on 1x FY19 BVPS.
  • Downside risk is worsening customer demand given the trade frictions, while re-rating catalysts include better-than-expected customer demand and success in hiring more workers.

Source: CGS-CIMB Research - 27 Feb 2019

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